It’s no secret that businesses and households are all being hit by the current economic climate, making the cost of everyday essentials to run any business, like fuel, food, and energy prices skyrocket, ultimately making for an extremely challenging business environment. Brexit, the war in Ukraine, hyperinflation in raw materials and rising energy costs are just a few examples of the challenges the food manufacturing industry is facing, however, there are positives on the horizon and ways in which business finance can help in these uncertain times. Let’s look at some of the challenges the food manufacturing industry is facing at present and finance for food manufacturing businesses which could help with the building financial pressures.
What challenges are currently facing the food manufacturing industry?
The food manufacturing industry is a fundamental sector of the UK economy, making up 2.43% of our GDP and employing around 420,000 people. To put it simply, without the food manufacturing industry, there will be no food supply chain.
There are many factors affecting the general working of businesses within the food manufacturing industry, some of these are:
Disruption to the supply chain.
Firstly, the UK’s withdrawal from the European Union made it difficult to source supplies, the emergence of Coronavirus put a big strain on the food supply chain and now the war in Ukraine has contributed to unprecedented difficulties within the food manufacturing supply chain. Businesses are sourcing different suppliers and different forms of freight for receiving goods, to attempt to combat the disruption. According to the Office for National Statistics, 55% of businesses are using more UK suppliers and 37% are increasing diversity among suppliers.
Crop failures and pressures within the agriculture industry.
The high temperatures of last summer and water shortages saw some farmers dealing with crop failures across fruits and vegetables, which could possibly result in this season’s harvest also being affected and further food price volatility. The agricultural difficulties are also having a knock-on effect on the food manufacturing industry, for example, Russia and Belarus are accountable for 40% of global potash stock, which is a potassium-rich salt, an essential ingredient in fertiliser and crucial for crop growth. The sanctions that have come from the war in Ukraine have resulted in a shortage and subsequent price rise in potash, which in turn will impact crop growth.
Inflation slashes profit margins.
Price rises in production, packaging and transport costs are diminishing many attempts at making a profit in the food manufacturing industry and significant difficulty in passing these costs onto retail customers. Where supermarkets are lowering prices for consumers, the issue is passing to the food manufacturers as it is often the supplier that foots the bill for these offers. Big chain supermarkets usually have a sound structure in place for purchasing, making it difficult for suppliers to negotiate a price change. However, a welcome improvement for suppliers is that supermarkets have improved their payment terms to push cash to suppliers earlier, this ultimately does not diminish the realisation that the cost of supply will continue to increase.
Labour shortages and difficulty in recruitment.
Brexit and the Covid pandemic were the initial factors in creating labour shortages within the food manufacturing industry. According to the Office for National Statistics, there was an estimated loss of up to 1m people from the UK labour force because of Brexit and many were also driven back to other countries due to Covid considerations. At present, the labour rate inflation and cost of living crises are adding to the pressure, and a third of companies are having to raise pay for both existing and new employees, as well as dealing with major staff shortages. Recruitment is also proving difficult within the sector, with 60% seeing the number of applicants drop for job posts.
Rise in energy prices and a cost-of-living crisis.
The cost to run a business within the food manufacturing industry has increased considerably , with the cost to heat premises, use ovens and packaging machinery creeping higher, it puts added pressure on all other aspects of the business. The cost-of-living crisis is further impacting these costs as consumers cut their spending on luxury or higher price foods, spending only what they need to get them through this turbulent financial time.
What does this look like for 2023?
Smaller businesses within the food manufacturing sector are likely to be hit the hardest in 2023, because although there is a simple truth of people needing to eat; earning a profit, servicing debts, and staying cash positive will make being a business within the food manufacturing industry in 2023 a big risk. That’s not to say that larger companies won’t also be affected, but a strong, flexible and long-standing finance management model is key to surviving and thriving in these times.
Some areas to review for surviving 2023 in the food manufacturing industry.
To make it through to the other side of the current economic crisis, there are a couple of areas within your business it would be beneficial to proactively review. The cost of your business is first and foremost. Gain an in-depth understanding of your underlying costs and true, live product costs. Keep up to date with forecasts and communicate with your customers regularly regarding cost volatility.
Having a clear understanding of where your business makes money and subsequently, where it doesn’t make money and creating a clear budgeting strategy against this, can be extremely beneficial. This will enable businesses to make more strategic financial decisions and spot cash flow pinch points early.
Research your suppliers for more competitive rates and benefits. Finding the best type of contract length or fixed rates can be beneficial to the survival of your business and evaluating your production processes can also enable you to remove inefficiencies and re-evaluate staffing levels.
How finance for food manufacturers can help.
Your food manufacturing business needs a high level of funding to work with the latest equipment and stay competitive despite the economic uncertainty and thankfully there are many options available to supply working capital. Some business finance options that can help the food manufacturing industry include:
- Asset Finance
- Asset Refinance
- Invoice Finance
- Business Finance
- Property Finance
- Structured Finance
- Trade Finance
This could be an extremely useful form of financing for food manufacturers as it allows you to manage your cash flow by bridging the gap between the point at which you make a sale, and the time payment is received from the debtor. It means you can avoid the usual wait for invoices to be paid and ensures that you get most of the cash immediately. This cash can then be put straight back into your business, increasing turnover and profits made, whilst also supporting business growth.
Asset finance is a finance option which allows a business to acquire much-needed assets and equipment without having to pay upfront. Instead of buying the asset straight out, you will pay a regular amount to use the asset over an agreed period, avoiding the full cost of buying outright. Waiting until you’ve got enough cash upfront to purchase an asset can make day-to-day operations much harder, which in today’s economic climate is something all businesses are looking to avoid. Asset finance allows businesses within the food manufacturing sector to obtain assets and benefit from these assets without paying for them upfront and in full,
which frees up cash for use in working capital.
How PMD can help with finance for food manufacturing businesses.
PMD works with over 150 lenders and can open several flexible, independent and competitive funding lines to help your business navigate its way through 2023. Whether that be utilising the assets you already have, helping to improve your cash flow or making use of invoice finance within your business, PMD provides finance options to ensure the best possible terms are secured for your business.
We take the hard work out of securing business finance and liaising with funders on your behalf, leaving you free to focus on running your business.
If you work in food manufacturing and are considering business finance options, get in touch today to see how PMD can help.